Investors who even casually follow the retail space know at least one thing: this year brought further confirmation of the move from brick-and-mortar stores to e-commerce.
The seismic shifts being caused by online retail were occurring before the coronavirus. The pandemic is merely speeding the process along — to investors' benefit.
One of the exchange traded funds at the epicenter of the ongoing shift to online retail is the ProShares Online Retail ETF (NYSE: ONLN). Up 15.51% over the past month, ONLN has recently been making a series of all-time highs.
While the price action confirms ONLN is on a torrid pace, other data suggest the fund's upside may still be in its early innings.
“Here’s a statistic that would probably surprise most people: According to the U.S. Census Bureau, e-commerce sales accounted for 11% of U.S. retail sales in 2019,” ProShares said in a recent note. “What may not be surprising is that e-commerce grew at over four times the rate of overall retail sales. Put those pieces together and, standing on January 1, you have a recipe for potential e-commerce growth. However, while e-ecommerce's share of the retail pie is growing, it’s still only a slice.”
Why It's Important
ONLN follows the ProShares Online Retail Index, a benchmark known for its large weights to Amazon.com (NASDAQ: AMZN) and Alibaba (NYSE: BABA). The fund and its index provide more than adequate coverage of other corners of the online retail space.
As the aforementioned price action confirms, ONLN is benefiting from that large Amazon exposure and its leverage to coronavirus stay-at-home trends.
“Of course, e-commerce has been a central player during global quarantine, so what might growth look like in a post-pandemic world?” ProShares said. “At the beginning of the year, estimates were that U.S. e-commerce in 2020 would grow 12% over 2019.”
It's clear that the COVID-19 pandemic is altering the retail landscape and while it will take some time to discover what the full impact will be, it's obvious there's going to be an impact — one that benefits ONLN components while leaving brick-and-mortar retailers increasingly vulnerable.
“It's too early to tell what the impacts of COVID-19 may mean for the retail sector,” said ProShares. “What we do know is that disruptive secular trends were in place long before the pandemic hit, and they are likely to remain deep-rooted long after it has passed.”